"The situation in Ukraine has not been solved but the worst case scenario hasn't played out," said Marcus Svedberg, chief economist at East Capital.

Relations between Moscow and the West hit their lowest ebb since the Cold War as Russia took control of Ukraine's Crimea region and pro-Russian separatist militias seized control of parts of eastern Ukraine.

In response, the U.S. and Europe slapped sanctions on some Russian companies and individuals.

Even though fighting continues in east Ukraine and Crimea remains under Russian control, the risks of a dramatic escalation in the conflict -- which would trigger tougher sanctions aimed at sectors of the Russian economy -- appear to have receded.

Russian President Vladimir Putin and Ukraine's newly elected President Petro Poroshenko have been talking about the possibility of a ceasefire in eastern Ukraine.

"I can't say there's no risk of further sanctions. But the likelihood has fallen," said Svedberg, adding that he's seen institutional investors getting back into Russia.

And some hedge funds were increasing their exposure to Russia at the height of the crisis. Data from FactSet shows hedge funds were buyers of U.S.-listed shares in VimpelCom(VIP) and Mobile TeleSystems(MBT), two Russian telecoms firms, during the first quarter.

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Meanwhile, the Western sanctions that have been imposed -- asset freezes and travel bans -- have not yet had a significant impact.

"They didn't have a direct impact on the economy," said Liza Ermolenko, an emerging markets economist at Capital Economics.

NATO Secretary General Anders Fogh Rasmussen said Thursday that more Russian troops have recently been deployed to the Ukrainian border.

"I consider this a very regrettable step backwards," he said. "So the international community would have to respond firmly if Russia were to intervene further. That would imply deeper sanctions which would have a negative impact on Russia."